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GRAPHIC-Where does most of Britain's inflation-busting oil come from?
October 18, 2016 / 12:00 PM / in a year

GRAPHIC-Where does most of Britain's inflation-busting oil come from?

LONDON, Oct 18 (Reuters) - Oil priced in sterling is set for its biggest yearly rise since 1999 and has already pushed UK fuel prices to their highest since August 2015, even thought much of the crude that Britain uses comes from UK-based oilfields.

Expectations of lower supply and stronger demand have put the oil price in dollar terms on course for its first yearly rise since 2012, having touched a one-year high above $52 a barrel this month.

Data on Tuesday showed British inflation recorded its sharpest jump in more than two years in September and most of that rise came from higher clothing prices and fuel costs.

Oil priced in sterling has risen to its highest in 18 months, to around 43 pounds a barrel, and is set for its biggest yearly jump since 1999, having risen by nearly 70 percent so far this year.

Because oil is denominated in U.S. dollars, British consumers will be unable to avoid the double-whammy of higher crude prices and a falling currency.

Since Britain’s vote to leave the European Union in late June, the value of sterling against the dollar has fallen by 18 percent to its lowest in more than 30 years.

“Sterling’s depreciation has had a mixed effect so far. Some essential items like petrol have seen higher prices, while others like food have not,” said Michael Martins, an economist at the Institute of Directors.

“The fall in food prices is likely due to pre-referendum dated contracts, short-term currency hedges, and inventories being run down. The real effect of a weaker sterling has yet to be felt in the sector.”

The falling pound will inevitably deliver a windfall to UK-based North Sea operators, many of which have been badly squeezed by the price of oil struggling to break above $50.

According to Reuters trade flows data, the United Kingdom has taken some 315 million barrels of oil so far in 2016, which works out at a rate of around 1 million barrels per day, roughly unchanged from last year.

Two thirds of that total comes from the North Sea, with 110 million barrels coming from the UK itself and a further 109 million from Norway, according to the data.

Producers and refiners work in dollars, meaning anything from crude oil sales to rig hire is paid for in that currency, even for transactions between two UK-based companies, while operational costs such as salaries, or local investments in infrastructure are not.

Prices of petrol at the pump are at their most expensive since August 2015, having risen by 4 percent in the last year, according to figures on Monday from the UK Department of Business, Energy and Industrial Strategy.

Reporting by Amanda Cooper; Editing by Mark Potter

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